|Posted on June 24, 2015 at 7:50 PM|
I was reading an article from Entreprenuer.com dated back in 2010. This may seem like a dated article but the information in it was and is very real to this day for many small business owners. The topic at hand is about mixing business and personal finances together.
Important Fact: The IRS frowns upon this type of activity.
Important Fact: Some form of legal entity should be established.
A few other points that were discussed in the article to help get you organized were:
1. Open a bank account for your business
2. Maintain up-to-date records on an accounting software or Excel
3. Open a business credit card
In a more recent article written for Chron.com by Madison Garcia, she speaks on the same items mentioned but also a few other important things to consider:
Hobby vs. Business
Maintaining a separate business account helps the IRS understand that your work isn't just a hobby. This is especially important if your business has posted losses in recent years.
Appearance of Professionalism
Keeping your personal finances separate from your business lends to your branding, credibility and professional image. Customers may question your level of commitment and professionalism if they're forced to make personal payments to you. Bookkeepers and accountants might get confused about what your invoice is for, which could delay your checks.
From a tax preparation standpoint, this is also another obstacle when intermingling business with personal funds that need to be mentioned, the IRS website had this Q&A:
Question: I am a sole proprietor and pay personal expenses out of my business bank account. Should I include the money used for personal expenses as part of my business income? Can I write these expenses off?
• You would include the money used to pay personal expenses in your business income when your business earned it.
• You would not write off these expenses as business expenses because they are not ordinary and necessary costs of carrying on your trade or business.
• Personal, living or family expenses are generally not deductible.
• It is a good idea to keep separate business and personal accounts as this makes it easier to keep records.
Moral of the story….yep you got the point. Separation is key!